How Much Should I Contribute to My 401(k) if No Match?

Is a 401(k) worth it? Yes, it is. But how much to put into a 401(k) account depends on what’s on offer. It helps to understand what these accounts are, and the limits that restrict your investments with or without a match.

According to Investor.gov, 401(k)s are qualified retirement accounts that offer you the ability to save some of your earnings in tax-advantaged accounts. They are usually offered by employers as part of their employee benefits.

The traditional version of the 401(k) enables you to save pretax dollars with the understanding that you will pay income taxes upon withdrawal after retirement. On the other hand, the Roth version enables you to save extra after-tax dollars into the retirement to avoid taxation later on when your earnings may be higher. SIMPLE and Safe Harbor 401(k) plans also exist, but their rules are a little bit different from the traditional and Roth 401(k) plans.

How much you put into each of these 401(k) accounts depends on the IRS contribution limits, your annual earnings and whether you will receive an employer match or not.

You may be wondering, “How much can I contribute to my 401(k)?” Each year, the IRS determines the maximum contribution limits, or elective deferral limits, to various types of qualified retirement accounts subject to cost-of-living adjustments.

In 2021, the elective deferral limit was ​$19,500​. But in 2022, the limit has been increased to ​$20,500​, and it applies to both Roth and traditional 401(k) accounts. So, the latter is the current amount that you can contribute, which is excluded from your gross income, lowering your taxable income amount that year.

It is also worth noting that if you are 50 years old or older, you have the right to invest in traditional catch-up contributions. The limit in this case is ​$6,500​ for the years 2020, 2021 and 2022.

For companies with 100 employees or less, the Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) 401(k) is an option they use to help employees save for retirement. If this is what your company offers, your IRS set the 2022 contribution limit as ​$14,000​. In 2020 and 2021, the limits were ​$13,500​.

If you are ​50 years or older​, you can make catch-up contributions to the tune of ​$3,000​ for the tax years 2020, 2021 and 2022.

In many ways, the Safe Harbor 401(k) plan is similar to a traditional version. However, it requires employers to contribute matching funds on behalf of employees who defer compensation or all eligible employees regardless of whether or not they opt for elective deferrals. In exchange, the companies that implement this plan will be exempt from the yearly nondiscrimination tests. Also, the employer contributions automatically fully vest.

Since safe harbor plans are similar to traditional 401(k) accounts in many ways, their annual contribution limit is set at ​$20,500​.

The matching limits for 401(k) accounts vary, depending on the IRS rules and what the company feels like offering.

Under the SIMPLE 401(k) plan, your employer can defer some of your compensation as long as they match your contribution up to ​3 percent​ of your pay, or make a non-elective contribution of ​2 percent​ of each of the eligible employees’ pay.

For traditional and Roth 401(k) accounts, employers can choose to contribute a match based on a specified dollar amount or a percentage of your pay, depending on the company plan document. However, the match amount is left up to them. In addition, they can choose to contribute in some years and not others.

The defined contribution limit, which includes both employer and employee contributions to your retirement accounts, currently stands at ​$61,000​ for the 2022 tax year, or ​100 percent​ of your compensation, whichever is lesser.

Previously, it was ​$58,000​ for 2021 and ​$57,000​ for 2020. However, if you are ​50 years​ or older, due to the permitted catch-up contribution, your limits will increase to ​$67,500​.

Ideally, if your employer matched your contributions, there would be no need to max out your 401(k). Instead, you would contribute to the maximum match possible and then invest the remainder of your funds somewhere else.

So, how much should you put in your 401(k)? It depends on your company plan and whether you like what it invests in.

If you like what your company plan offers, you can still max out your 401(k). You can do that by investing up to ​$20,500​ (or ​$27,000​ if 50 years or older) of pre-tax dollars in a traditional 401(k). Alternatively, you can distribute some of your after-tax earnings into the Roth 401(k), assuming your company offers the option, as long as you don’t exceed your annual limit.

The limits for SIMPLE 401(k)s also apply (​$14,000​, or ​$17,000​ if 50 years or older).

If you prefer to seek other alternatives, you could open a traditional or Roth IRA account to supplement what you invest via a 401(k) and make up for the lack of an employer match. The former will be funded by your pre-tax dollars, while the latter requires an investment of after-tax funds.

The total annual contribution limits for both the traditional and Roth IRA are ​$6,000​, or​ $7,000​ if you are 50 years or older. These limits apply for the tax years 2019 to 2022.

Remember, your annual income may limit whether you can contribute to an IRA and how much you can contribute to it. Also, if you or your spouse contribute to an employer-sponsored plan, even if there is no match, you may not be able to deduct all your contributions to the supplementary traditional IRA.

But regardless of the choices you make concerning your retirement investments, take advantage of tax-advantaged accounts to reduce your taxable income now or taxable earnings in the future.